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Advance Tax : Rules, Calculations, and Due Dates

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Hiral Vakil

Advance Tax
Presumptive Tax
Salary Income
Last updated on October 11th, 2021

Advance tax is the “Pay as you earn”tax that has to be deposited to the Income Tax Department during the financial year. This ensures that the government can collect more uniformly throughout the year.

Latest Update as per Income Tax Department

The ITD will now send the taxpayers a mail with the details of the amount of advance tax that was paid over each quarter which would help the taxpayers to reconcile with their records for the same.

What is Advance Tax?

It is a part payment of your tax liability before the end of the financial year. Another name for it is – “pay as you earn scheme” where the income tax should be paid in the year in which the income is received.

Union Budget 2021 Update

Advance Tax liability would arise on dividend income only once the dividend is declared or paid since it is difficult for the shareholders to estimate the dividend income accurately.

Who is required to Pay Advance Tax?

Every person whose tax liability for a financial year exceeds INR 10,000 has to pay it on an installment basis. Income from all the different heads are added to calculate the advance tax.

Advance Tax Filing (Quarterly)
CA Assisted Advance Tax calculation and payment for Individuals and businesses with tax payable more than INR 10,000 after TDS deducted
[Rated 4.8 stars by customers like you]
Advance Tax Filing (Quarterly)
CA Assisted Advance Tax calculation and payment for Individuals and businesses with tax payable more than INR 10,000 after TDS deducted
[Rated 4.8 stars by customers like you]

For Salaried individuals

In the case of a person having income from salary, the employer calculates the tax on salary. He is responsible to deduct tax (TDS) from your salary income and deposit the same to Government. So a salaried person does not have to pay this tax on salary income.

However, if a salaried person is having income other than salary (for eg. rental income from house property or interest from fixed deposits etc.), and if tax liability on such income exceeds INR 10,000 then the taxpayer has to pay advance tax. It is very common for salaried people to have alternate income sources and as a result, they would become liable to pay this tax.

For Presumptive Taxation

Up until FY 2015-16, assessees opting for presumptive taxation scheme were not required to pay advance tax. However, with effect from FY 2016-17 (AY 2017-18), assessees opting for presumptive taxation scheme will have to pay the tax amount in a single installment on or before 15th March. From FY 2016-17 (AY 2017-18), Freelancers and professionals can also opt for the presumptive taxation scheme and avoid the cumbersome tasks of maintaining books of account and audit.

The “Pay-as-you-earn” liability for the presumptive taxation scheme is to be calculated and paid only once before the end of the financial year. Here is how the tax should be calculated for the presumptive taxation scheme:

Assessee type Presumptive income Advance tax liability
Business owners 8% of Turnover or Gross receipts Tax at slab rates on presumptive income (flat 30% in case of partnership firm)
Professionals (Freelancers) 50% of professional fee receipts Tax at slab rates on presumptive income (flat 30% in case of partnership firm)

For Freelancers/professionals

Freelancers and professionals who do not opt for the presumptive taxation scheme have to calculate and pay this tax on an installment basis. They have to estimate their annual income and calculate the tax on the same because in most cases TDS which is deducted by their customers/clients while making payments, is not enough to meet the total tax liability.

Advance Tax Calculation

Time needed: 10 minutes.

  1. Estimate your income

    Estimate your income from business or profession. Add all the incomes from ongoing projects or assignments whose fees are already determined. Also, add the incomes which are expected on the basis of ongoing interactions with clients/customers.

  2. Subtract eligible deductions and expenses

    Deduct all eligible deductions such as tax-saving investments and payments (under the old tax regime) and expenses from your total estimated income.
    You can deduct the expenses which are directly related to your business or profession. Rent, electricity, legal and professional fees, books, fuel expenses, the salary of employees, depreciation, etc. are some of the expenses which are allowed to be deducted from the income.

  3. Calculate the tax liability

    Add incomes from remaining sources like house property, capital gains, income from other sources, etc. Then calculate the tax liability for your total income on the tax slab rates and deduct the TDS which has already been deducted from your income.

  4. Deduct Taxes Paid

    Refer to your Form 26AS and deduct all taxes paid such as TDS deducted and deposited on your behalf, previous advance tax installments paid during the financial year.

  5. Assess your tax liability

    If the resulting tax liability is more than INR 10,000 then you are required to pay advance tax on an installment basis as per the schedule given below.

Advance Tax Due Dates

Due date of installment Advance Tax payable by Individual and Corporate Taxpayers
On or before 15th June 15% of the tax liability
On or before 15th September 45% of the tax liability
On or before 15th December 75% of the tax liability
On or before 15th March 100% of the tax liability
Advance Tax Filing (Annual)
CA Assisted Advance Tax calculation and payment for Individuals and businesses with tax payable more than INR 10,000 after TDS deducted
[Rated 4.8 stars by customers like you]
Advance Tax Filing (Annual)
CA Assisted Advance Tax calculation and payment for Individuals and businesses with tax payable more than INR 10,000 after TDS deducted
[Rated 4.8 stars by customers like you]

FAQs

Do salaried people have to pay advance tax?

​In the case of salaried individuals, TDS is deducted from their salary and deposited to the government by their employer. So as far as salary income is concerned, they are not required to pay advance tax. However, for all the incomes other than salary, if the total of such incomes exceeds INR 50,000 then they will have to assess the tax liability on the same and pay tax.

How do I determine whether I am liable to pay advance tax or not?

​Before every due date for payment of advance tax, you will have to calculate your expected annual income and determine the tax liability on the same. If your total tax liability exceeds INR 10,000 then you are liable to pay it as per the schedule has given above.

How to pay advance tax?

​There are two ways of tax payment:
– Deposit in the bank with advance tax challan or
– Online payment using Net banking facility

What if I don’t pay advance tax on time?

​As mentioned above, if you fail to pay advance tax or make a late payment of it, you will have to pay penal interest. Under section 234B, interest for default in payment of advanced tax is levied at 1% simple interest per month or part of a month

Got Questions? Ask Away!

  1. Hey @Shweta_Saini

    Advance tax is a ‘Pay as you earn’ tax, so it is required to be paid during the financial year in four different instalments in case your Taxable Liability is more than INR 10,000 for the financial year which stands true for you.

    The due dates for advance tax installments are:

    • 15th June - 15% of the tax liability
    • 15th Sept - 45% of the tax liability
    • 15th Dec - 75% of the tax liability
    • 15th March - 100% of the tax liability

    If you are eligible to pay advanced tax but have not paid advance tax, the penalty will be applicable u/s 234B and 234C.

    Let us know if you have any further questions!

  2. Hi Team, I had assumed that I will be able to pay advanced tax before March because I thought I could go for presumptive tax filing. But now it looks like I cannot opt for a presumptive taxation scheme. So does it mean that I did not pay the advanced quarterly tax that I was supposed to pay?

    If yes, what is the penalty in every case or are there some exceptions to avoid this interest penalty?

    Thanks in advance!

  3. Hey @riya_gupta

    You will be charged an interest penalty under section 234C for the delay/non-payment of advance tax during the year @1% per month on the shortfall amount. Additionally, under Section 234B a penalty interest is imposed on the taxpayers in case the advance tax payment is less than 90% of assessed tax liability during the year.

    You can avoid interest u/s 234B by paying at least 90% of your assessed tax liability by March 15, 2021.

    Hope this helps!

  4. Hey @TeamQuicko

    I have LTCG of more than 7 lakhs from the equity for this year. Is there a way to reduce my tax liability? Also, do I have to pay the tax in advance? If I fail to do so, what will be the penalty/interest percentage I have to pay during my tax filing in 2020?

  5. Hey @ViraajAhuja47, you can set off against non-speculative business loss like F&O for the current year. Long-term capital losses for the previous as well as the current year. Yes, you are required to pay advance tax in case your tax liability is more than INR 10,000 for the FY. The penalties for non-payment of advance tax are:

    Non-payment of Advance Tax u/s 234B 3: Interest at 1% in case the taxpayer fails to pay 90% of the tax liability in the same FY
    Delay in Payment of Advance Tax u/s 234C 1: if there is a delay in tax payment than interest @ 1% is applicable.

  6. Hello @S_P

    Tax paid on or before 31/03/2021 will be considered as advance tax for FY 2020-21. So a trader can determine the profits between 15th March to 31st March and pay the tax on 31st March, there will be no interest levied.

    Hope this helps!

  7. Hi @TEst_Netflix,

    Tax audit is applicable when:

    1. Turnover is above the threshold limit
    2. Profit is >=6% of the turnover

    You can use this tool to determine if tax audit is applicable to you:

    It is always a good practice to file your ITR and report all your financial transactions to avoid notice from the Income Tax Department. Especially after the SEBI and CBDT’s data partnership. If your total income is below the basic exemption limit, you won’t have any tax liability.

  8. Do I have to pay Advance Tax if the TDS for the year is sufficient to cover tax liabliltiy?

    Does Dividend on equity shares attract separate Advance Tax or is it just another source of income?

  9. Hi @vivek25,

    You are liable to pay advance tax if your total outstanding tax liability for the financial year after TDS is above INR 10,000.

    To calculate your advance tax liability you need to add your estimated income for the financial year from all sources including - Salary, House Property, Capital Gains, Business & Profession and other sources.
    Next, subtract all eligible deductions, expenses, and Tax Credit available to you.
    Now, if your outstanding tax liability is above INR 10,000, you need to pay advance tax to avoid penalty u/s 234B and 234C.

    Hope this answers your query :slight_smile:

    You can also use the advance tax calculator to know your advance tax liability under the old and new tax regime

  10. Hi
    When I pay the advance tax through the ZERODHA-QUICKO platform, does it get saved/stored? For example I have paid for Q1. so when I have to pay for Q2, will this be automatically calculated?
    Thanks

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